Sunshine Breaking Through the Clouds: Delaware Supreme Court Sheds Light on Standard of Review for Challenges to Advance Notice Bylaws

Summary

On July 11, 2024, the Delaware Supreme Court issued a long-awaited decision regarding the validity and enforceability of certain provisions in a company's advance notice bylaws. The Kellner v. AIM Immunotech Inc., No. 3, 2024, 2024 Del. LEXIS 236 (July 11, 2024) decision clarifies how the Delaware courts will evaluate claims challenging an advance notice bylaw. Critically, it confirms that different standards attach when a plaintiff challenges (i) the language of a company's bylaw (a so-called facial or validity challenge) in the abstract, absent a proxy contest versus (ii) a board's decision to adopt, amend, or enforce an advance notice bylaw during a proxy contest (a so-called as-applied challenge). This decision provides helpful guidance to practitioners and will hopefully limit the wave of facial challenge litigation that followed the Kellner trial court ruling.